The COVID-19 pandemic and related government mandates created many business challenges across numerous industries. Chief among these were keeping employees on payroll despite restrictions to business operations or decreased revenue. The Employee Retention Credit (ERC) was created to help alleviate this burden by providing financial assistance so employers could support people with continued employment and healthcare coverage. However, the ERC has been generally overlooked or avoided by some industries. Healthcare, and specifically skilled nursing facilities and long-term care facilities, are among such businesses. Contrary to some assumptions, these operations may very well qualify for the ERC, and deserve access to this government assistance for their role in supporting both their employees and their patients throughout the pandemic.
Employee Retention Credit Eligibility for Skilled Nursing Facilities
The ERC is a payroll tax credit available to businesses partially suspended by governmental orders or those that experienced a significant decline in gross receipts.
Employers can claim the ERC for 2020 if they experienced either:
- A full or partial suspension of the operation of their trade or business during a calendar quarter due to governmental orders limiting commerce, travel, or group meetings due to COVID-19; or
- A significant decline in gross receipts by more than 50% when compared to the same quarter in the prior year.
Employers are eligible for the ERC for 2021 if they experienced either:
- The same types of suspensions due to government orders described for 2020; or
- A decline in gross receipts in the first, second or third calendar quarters of 2021 where the gross receipts are less than 80% of the gross receipts of the same calendar quarter in 2019.
Many skilled nursing facility and long-term care facility operators did not see such declines in gross receipts, and that has led some to the conclusion that they are not eligible for the ERC. Increased compensation received for Medicare patients in accordance with the CARES Act might have boosted gross receipts despite operational modifications reducing their ability to serve patients and their families. However, an employer can also qualify for the ERC based on the governmental order requirement. This governmental order test does not necessarily require a decline in gross receipts for an employer to be eligible.
Why Increased Compensation Doesn’t Disqualify for the Employee Retention Credit
Skilled nursing facility operators and operators of long-term care facilities may have received increased compensation from Medicare patients during the pandemic, but many operations are now struggling to pay incurred expenses. Certain costs skyrocketed, such as personal protective equipment (PPE) requirements and hazard pay, while restrictions on bed capacity limited their opportunity for higher gross receipts to offset those costs. Many experienced revenues on par with pre-pandemic years despite higher expenses.
Skilled nursing facilities and long-term care facilities should evaluate how governmental orders modified and partially suspended their normal business operations. COVID-19 orders restricted nursing home visitation, social programs, communal dining, the number of patients allowed per room, among many other provisions. Furthermore, a positive test would close a nursing facility to new patients for two weeks.
Experian Employer Services takes these specific facts and circumstances into account to determine the exact impact and determine eligibility for an ERC claim.
What are Government Restrictions Pathways?
In March of 2021, the IRS published “Guidance on the Employee Retention Credit under Section 2301 of the Coronavirus Aid, Relief, and Economic Security Act” to clarify many ambiguous sections of the original legislation passed as part of the initial COVID-19 Relief Bill. One section deals with understanding the pathway of eligibility around Government restrictions.
While skilled nursing facilities were deemed essential businesses, and therefore did not face a full suspension of operations, question 17 of the IRS Notice states: “If all, or all but a nominal portion, of an employer’s business operations may continue, but the operations are subject to modification due to a governmental order (for example, to satisfy distancing requirements), such a modification of operations is considered to be a partial suspension of business operations due to a governmental order if the modification required by the governmental order has more than a nominal effect on the business operations under the facts and circumstances.” An organization may qualify even if deemed essential and therefore not fully shut down.
Proving Impact on Skilled Nursing Facilities
It is important for any company who takes this credit make sure it is documented correctly. Experian Employer Services has a team of experts who can assist with preparing the documentation the IRS has indicated as necessary to substantiate a claim.
Skilled nursing facilities should not discount the ERC based on gross receipts alone. Instead, they should explore eligibility to offset the added expenses incurred throughout the pandemic as they kept employees on payroll and provided care to patients.